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Hologic (HOLX) Down 11.1% Since Earnings Report: Can It Rebound?

More than a has gone by since the last earnings report for Hologic, Inc. (HOLX - Free Report) . Shares have lost about 11.1% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

Hologic Inc. reported third-quarter fiscal 2017 adjusted earnings per share (EPS) of $0.50, down 1.9% year over year. However, adjusted EPS beat the Zacks Consensus Estimate by a penny and remained at the upper-end of the company’s guidance of $0.48–$0.50.Strong top-line growth led to better-than-expected EPS increase in the reported quarter.On a reported basis, the company recorded net income of $59.5 million or $0.21 per share, both reflecting a year-over-year decline of 29.8% and 32.3%, respectively.

Revenues in Detail

Revenues grossed $806.1 million in the quarter, up 12.4% year over year. The top line also exceeded the Zacks Consensus Estimate of $799 million and the company’s own estimation of $790–$805 million. At constant exchange rate (CER), revenue growth was 13.1%.Solid growth at Hologic’s molecular diagnostics and GYN Surgical business segments drove this upside in the top line.Geographically, revenues in the U.S. grew 9.5% year over year to $618.5 million. Excluding blood screening and medical aesthetics, the U.S. revenue rose 1.3%. On the other hand, international revenues were up 23% (up 26.5% at CER) to $187.6 million, banking on increased revenues of Breast Health and GYN Surgical products. Excluding blood screening and medical aesthetics, international revenues increased 6.8% or 10.5% at constant currency.

Segments in Detail

Revenues at the Diagnostics segment (35.2% of total revenue) declined 8.3% year over year (down 7.4% at CER) to $284.1 million in the second quarter. Under this segment, molecular diagnostics revenues of $144.1 million increased 9.3% (10.3% at CER). In the U.S., this was primarily driven by an increasing market share and utilization of fully automated Panther system, plus market expansion by conforming to testing guidelines. Internationally, results were strong from acquiring benefits of new leadership, healthy Panther placements and multiple new-product introductions, including viral load assays.

Cytology and perinatal revenues of $121 million also showed a decline of 1% (up 0.2% at CER).

Revenues at the Breast Health segment (35.1%) inched up 0.4% (up 0.9% at CER) to $283.7 million. Revenues in the U.S. declined 1.7% on reducing incremental placements of 3D gantries. International revenues however climbed 13% year over year.

Revenues from the GYN Surgical business (13.2%) were up 4.4% (up 5.2% at CER) to $106.5 million. Medical Aesthetic business in the quarter reported revenues of $110 million, 13.6% of total revenue. Revenues at Skeletal Health (accounting for the rest) dropped 5.3% (down 5% at CER) to $21.8 million.

Operational Update

In the fiscal third quarter, Hologic’s gross margin contracted 400 basis points (bps) to 50.8%. Adjusted gross margin also decreased 260 bps to 63.1% due to product and geographic revenues mix, divestiture of blood screening business and a full quarter of revenues from low-margin Cynosure products.

Hologic exited the fiscal third quarter with cash and cash equivalents of $588.4 million, considerably below $1.13 billion reported at the end of the second quarter. Total long-term debt was $3.22 billion at the end of the fiscal third quarter compared with $3.28 billion at the end of the preceding quarter.

Year-to-date operating cash outflow was $158.3 million compared with cash inflow of $569.7 million in the same period last year.

Fiscal 2017 Guidance

Hologic reduced its revenue guidance for fiscal 2017. The company currently expects revenues in the range of $3.04–$3.05 billion from the earlier band of $3.05–$3.08 billion. This new outlook reflects annualized growth of 7.3–7.8% (previously it was 7.7–8.7%). The current Zacks Consensus Estimate of $3.07 billion remains above the company-provided guidance.

Management has however raised the lower end of the earlier provided adjusted EPS outlook for fiscal 2017. Hologic currently projects adjusted EPS in the range of $2.00–$2.02 (from previous $1.98–$2.02) for fiscal 2017, reflecting annualized growth of 2–3.1% (1–3.1%). The current Zacks Consensus Estimate for adjusted EPS is pegged at $2.01, falling just below the upper end of the guided range.

For fourth-quarter fiscal 2017, Hologic expects revenues of $785–$800 million, representing annualized growth of 8–10.1%. The current Zacks Consensus Estimate for fourth-quarter revenues is $798.9 million, close to the upper end of the projected range.

Adjusted EPS is projected at $0.48–$0.50, an annualized decline of 7.2–3.4%. The current Zacks Consensus Estimate for fourth-quarter adjusted EPS is pegged at $0.49, within the company’s guidance.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the past month as none of them issued any earnings estimate revisions.

At this time, Hologic's stock has a poor Growth Score of F, however its Momentum is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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